THE HINDU
- The economy needs a stimulus and a budget has to push for growth while ensuring fiscal responsibility:
Faltering GDP growth, a consumption slowdown, a truant monsoon that has already hit kharif sowing, global trade tensions and a freeze in the credit market that has set alarm bells ringing across the financial system. This is the backdrop to the maiden Budget of the Finance Minister, Nirmala Sitharaman.
Walking a tightrope
The Minister has had less than a month to work on this crucial Budget which is expected to work its magic on the economy. Ms. Sitharaman’s position is unenviable. She has to push for growth, which means stimulus measures, but also stay fiscally responsible, which means sticking to the fiscal deficit glide path. This balance is almost impossible to achieve in an environment where tax revenues do not offer enough support for a stimulus package.
The questions before Ms. Sitharaman are simple: Should she opt to stimulate consumption in the economy even if it means putting the fiscal deficit glide path in temporary cold storage? If yes, what is the best way to do that?
Following from the above are subsidiary questions such as these: Will the resultant higher borrowings crowd out the private sector borrowers and push up market interest rates at a time when the monetary authority is driving rates down? What will be the impact on inflation? Should the stimulus be in the form of cutting taxes and putting more money in the hands of the consumer? Or should it be in the form of even higher spending on infrastructure that will have definite fiscal spin-offs? And what about welfare spending? The government has already announced an expansion of the Pradhan Mantri Kisan Samman Nidhi Yojana that will take away ₹87,500 crore this fiscal. And there are many other pet schemes of this government that need to be funded.
Ground realities
To be sure, the answers are not easy. But just consider these. GDP growth fell to 5.8% in the fourth quarter of 2018-19, with important industry segments reporting a fall in growth. Sales of automobiles, the bellwether for the larger economy, has been sliding since October last year and in the first quarter of this fiscal, sales volumes are down by about 18%. Fast moving consumer goods, two-wheeler and consumer durables manufacturers are all reporting dull rural sales.
Real estate and construction, one of the biggest job creators in the economy, have been in stupor for several months and are a direct cause of the credit freeze in the markets now. It is clear that the bottom has fallen off consumption demand, something reflected in the annual results of a host of companies in the consumer sector.
Given these, there is little doubt that the economy needs a stimulus. The downside to the government embarking on this path is clear. Direct tax revenue growth failed to meet budgeted levels in 2018-19, falling short by ₹82,000 crore from the target of ₹12 lakh crore. Goods and Services tax collections, though rising, are still not stabilising at the required level of between ₹1,00,000 and ₹1,10,000 crore a month.
It will be next to impossible for the government to meet its over-ambitious tax estimates in the interim Budget for 2019-20. And then there are the bills to pay from last year to the Food Corporation of India and a couple of other public sector undertakings which helped the government ‘achieve’ the fiscal deficit target last year.
Pros and cons of options
There are a few options that the government can consider for off-balance sheet financing. First, go big on asset sales. The interim Budget had earmarked ₹90,000 crore from disinvestment but if the government is able to successfully pull off the Air India sale, it would be almost half-way there. There are a host of other government companies that can be sold off to raise the targeted proceeds.
Second, a one-time transfer from the Reserve Bank of India’s reserves, which is under the consideration of the Bimal Jalan Committee. However, if reports of the committee’s deliberations are to be believed, it may be futile for the government to hope for a major windfall here. The committee will anyway submit its report well after the Budget is presented.
Third, 5G spectrum auctions. While there is reason to hope for some support here, it is unlikely that it would materialise this fiscal. The telecom companies are still licking their wounds from the combined effect of past excesses and bruising competition in the market. Their appetite, as it is, is poor for any more spectrum. So pushing through a 5G auction now would be disastrous.
That leaves us with just one option — that of increasing borrowings which will, of course, mean curtains for the fiscal deficit target of 3.4% this fiscal. Higher government borrowings may elbow the private sector borrowers out.
Increased borrowings by the government will have the unintended negative consequence of pushing up market rates which is something that the government would not desire. And then, of course, there will be questions to answer from Standard & Poors and Moody’s which are certain to take a dim view of the fiscal indiscretion.
But then there is some good news too. Thanks to the recent directive of the stock market regulator, the Securities and Exchange Board of India directing mutual funds to put away 20% of their liquid scheme investments in government securities, a new market opens up for the government. Whether it is deep enough to absorb the increased borrowings is a matter of detail but it can certainly cushion the market to some extent.
Second, yields on government securities are at around 6.82% currently. So even a 10 or 20 basis point rise due to higher borrowings may not cause much dissonance. The market is aware of the difficult circumstances now and should be able to take this in its stride.
As for the ratings agencies, the government needs to be in dialogue with them, reiterate its commitment to fiscal discipline and reassure them that this is a temporary aberration.
On stimulus.
So, once the decision is made to be accommodative, Ms. Sitharaman’s problem will be to identify the best way to impart stimulus. There are two choices — either to cut taxes and let consumers to go out and spend the excess. Or just borrow and spend on asset creation in infrastructure. Given that there is a serious slowdown in consumer-facing sectors, the better option may be to put more money in the hands of consumers.
A good option to consider would be adjusting income tax slabs and increasing deductions under Section 80C which is a measly ₹2 lakh now. Better still would be to increase the interest deduction for housing loans which would also give a boost to the real estate market. These measures would run counter to the reform objective of easing out all exemptions and lowering rates. But then that is under examination by the Direct Tax Code (DTC) panel; the concessions given now will automatically become a temporary measure assuming that the DTC is soon implemented.
The fall in tax revenues from the concessions will be eventually made up downstream from indirect taxes if consumers spend the extra money in their hands. The choice to borrow and spend is indeed a difficult one but in the current circumstances this may be inevitable. Fiscal conservatives are bound to frown at this and there would be dire warnings of the consequences of not adhering to the fiscal deficit commitment. The best answer is that this government now has five years to make up for the indulgence.
- The questions the constitutional crisis in Puducherry raises are fundamental to the concerns regarding federalism:
The return of the Bharatiya Janata Party-led National Democratic Alliance government in 2019 with a resounding majority in the 17th Lok Sabha raises pertinent questions about the future of federalism in India. Will a “strong” Union government which does not require the support of “regional” allies be detrimental to the interests of States? While the Prime Minister has often invoked the need for “cooperative federalism”, the actions of his government in its first term sometimes went against this stated ideal. These include dismantling the Planning Commission and transferring its power to make state grants to the Finance Ministry; introducing terms of reference to the Finance Commission which threaten to lower the revenue share of the southern States; and the partisan use of the Governor’s office to appoint Chief Ministers in cases of hung Assemblies.
The most blatant abuse of power was the imposition of President’s Rule in Opposition-ruled Arunachal Pradesh and Uttarakhand, decisions the Supreme Court subsequently held as unconstitutional. Further, through the Lieutenant Governor (LG), the Centre ran a protracted war with the Delhi government which brought its administration to a stalemate until the Supreme Court affirmed the primacy of the elected government. A similar long-running battle between the LG and Chief Minister of Puducherry has now reached the Supreme Court. This case will further test the strength of Indian federalism in the Modi era.
Distinct provisions
Since the appointment of Kiran Bedi as the LG in May 2016, Puducherry Chief Minister V. Narayanasamy has protested her continual interference in the daily affairs of the Puducherry government and running an alleged parallel administration. The Union Government, in clarifications issued in January and June 2017, further bolstered the case of the LG. When this was legally challenged, the Madras High Court quashed the clarifications issued by the Union government and ruled that the LG must work on the aid and advice of the Council of Ministers and not interfere in the day-to-day affairs of the government. The Union government challenged this decision in the Supreme Court where a vacation Bench passed interim orders recently restricting the Puducherry cabinet from taking key decisions until further hearing.
The Madras High Court had relied on the 2018 decision of the Supreme Court regarding the power of the National Capital Territory (NCT) government of Delhi. In that case, a five-judge Bench unanimously held that the Chief Minister and not the Lieutenant Governor is the executive head of the NCT government, and that the LG is bound by the aid and advice of the Council of Ministers. It held that the executive power of the NCT government is co-extensive with the legislative power of Delhi’s Legislative Assembly and the LG must follow the decisions of the cabinet on all matters where the Assembly has the power to make laws.
Puducherry, like Delhi, is a Union Territory with an elected legislative Assembly and the executive constituted by the Lieutenant Governor and Council of Ministers. However, Puducherry and Delhi derive their powers from distinct constitutional provisions. While Article 239AA lays out the scope and limits of the powers of the legislative assembly and council of ministers for Delhi, Article 239A is merely an enabling provision which allows Parliament to create a law for Puducherry. Interestingly, while Article 239AA restricts Delhi from creating laws in subjects such as police, public order and land, no such restriction exists for Puducherry under Article 239A. In fact, the Government of Union Territories Act, 1963 which governs Puducherry vests the legislative assembly with the power to make laws on “any of the matters enumerated in the State List or the Concurrent List”. Hence, the legislative and executive powers of Puducherry are actually broader than that of Delhi.
After analysing the laws and rules governing Puducherry, the Madras High Court held that the LG has very limited independent powers. Under Article 239B, the LG can issue an ordinance only when the Assembly is not in session and with the prior the approval of the President. If there is a “difference of opinion” between the LG and the cabinet on “any matter”, like in Delhi, the LG can refer it to the President or resolve it herself if it is expedient. However, the Supreme Court in the NCT Delhi case held that “any matter” shall not mean “all matters” and it should be used only for “exceptional” situations. Hence, there is no legal basis for the LG to exercise powers independently and bypass the elected government of Puducherry.
Respecting federalism
Ultimately, the question is whether state actions should respect the underlying principles of democracy and federalism. Why should a legislative Assembly be elected and a Council of Ministers appointed if actual powers are independently exercised by an unelected nominee of the Centre? The Supreme Court, in the NCT Delhi case, rightly employed a purposive interpretation of the Constitution to hold that since representative government is a basic feature of the Constitution, the elected government must have primacy. Given this precedent and the fact that Puducherry has lesser legal restrictions on its powers, the Supreme Court should uphold the Madras High Court judgment and ensure that the LG acts only as per the aid and advice of the elected government.
Perhaps because of its distance from Delhi, small area and relatively low political heft, the constitutional crisis in Puducherry has received far less attention than it deserves. However, the questions it raises are fundamental to the concerns regarding federalism in India. While Puducherry may not be a “State” under the Constitution, the principle of federalism should not be restricted to States but also include the legislative Assemblies of Union Territories and, arguably, councils of local governments. As more centralising measures such as simultaneous elections to Parliament and State Assemblies are being proposed by the Centre, it is important to reaffirm the values of federalism at every forum.
- PM Kisan is limited in both scope and implementation:
The Pradhan Mantri Kisan Samman Nidhi (PM-Kisan), a cash transfer programme that draws on major initiatives by two State governments, has a long way to go in terms of both its implementation and scope of coverage. Even as the cropping season is under way, the scheme’s support has not reached farmers in most of the country’s regions.
Launched by the Centre at the end of its previous tenure and made effective retrospectively from December 1, 2018, the measure is a necessary state response to assuage agrarian unrest. The scheme’s original objective, to “supplement financial needs” of the country’s Small and Marginal Farmers (SMFs) and to “augment” farm incomes, has now been broadened to include all categories of agricultural landowners. This expansion would benefit an additional 10% of rural landed households.
PM-Kisan offers ₹6,000 a year per household in three instalments. Broadly speaking, this amounts to only about a tenth of the production cost per hectare or consumption expenditure for a poor household. Hence, though what the programme offers is meagre, it promises some relief to poor farmers by partially supplementing their input costs or consumption needs.
Not linked to land size
The cash transfer is not linked to the size of the farmer’s land, unlike Telangana’s Rythu Bandhu scheme, under which farmers receive ₹8,000 per annum for every acre owned. While landless tenants have been left out in both the schemes, the link with land size makes the support provided by the Telangana scheme more substantial. PM-Kisan also falls short of Odisha’s Krushak Assistance for Livelihood and Income Augmentation (KALIA) scheme, which includes even poor rural households that do not own land.
Though the first quarterly instalment, for the December 2018-March 2019 period, was to be provided in the last financial year, the benefits of PM-Kisan have not reached farmers in most parts of the country. With kharif cultivation activity under way already, the scheme’s potential to deliver is contingent on its immediate implementation.
There are 125 million farming households owning small and marginal holdings of land in the country, who constitute the scheme’s original intended beneficiaries. However, at present, the list of beneficiaries includes only 32% (40.27 million) of these households.
Further, a majority of the intended beneficiary households are yet to receive even their first instalment of ₹2,000. Only 27% (33.99 million) received the first instalment, and only 24% (29.76 million) received the second. In budgetary terms, only 17% of the estimated ₹75,000 crore expenditure has been spent. Moreover, implementation in certain States has been prioritised. U.P., for instance, accounts for one-third of total beneficiary households — 33% (11.16 million) in the first instalment and 36% (10.84 million) in the second. About half of the State’s SMF households have been covered. Only two other States — Gujarat and Andhra Pradesh — have gained a prominent share. A total of 17 States have received a negligible share of the first instalment, accounting for less than 9%.
Larger structural issues
For the scheme to be effective, PM-Kisan needs to be uniformly implemented across regions. However, one needs to be mindful that it is not a fix for larger structural issues. Cash transfers will cease to be effective if the state withdraws from its other long-term budgetary commitments in agricultural markets and areas of infrastructure such as irrigation. Subsidies for inputs, extension services, and procurement assurances provide a semblance of stability to agricultural production. Food security through the National Food Security Act is also closely linked to government interventions in grain markets. If the budgetary allocations shift decisively in favour of cash transfers, they will be a cause for great concern. Further, the scheme recognises only landowners as farmers. Tenants, who constitute 13.7% of farm households and incur the additional input cost of land rent, don’t stand to gain anything if no part of the cultivated land is owned. Hence, there is a strong case to include landless tenants and other poor families.
Moreover, though the scheme is conceptualised to supplement agricultural inputs, it ceases to be so without the necessary link with scale of production (farm size) built into it. It becomes, in effect, an income supplement to landowning households. If income support is indeed the objective, the most deserving need to be given precedence.
- A cyberattack may not prove to be a feasible retaliatory measure for strategists in New Delhi:
Amidst U.S.-Iran tensions, an American drone was shot down by Iran’s Islamic Revolutionary Guard Corps in June. President Donald Trump delivered a customary response on Twitter stating that Iran had made a “very big mistake”. A military strike was planned, and even authorised, but later called off by Mr. Trump who apparently favours bloodless wars.
In pursuance of this bloodless war, the U.S. cybercommand conducted online attacks against Iran. It is speculated that the strikes targeted Iran’s military command and systems such as those that control Iran’s missile and rocket launchers. In this context, a general question that arises is: Can India conduct such retaliatory attacks?
After every terror attack, India has few kinetic options to retaliate. Primarily, they comprise air strikes, ground-based surgical strikes, stand-off strikes from inside the border and covert operations. Additionally, there is the option to impose diplomatic pressure on Pakistan.
The implicit criteria
Following India’s response against Pakistan, especially on the past two occasions, a few implicit criteria relating to the handling of the aftermath of an operation can be deduced. It is necessary to meet, or foresee the meeting of, these criteria before any operation is incorporated into India’s arsenal of retaliatory options. It is pertinent to note that these criteria are not in the context of the operational requirements of the Indian armed forces. The criteria are: pre-emption, non-military nature, and deterrence.
First, the fulfilment of the criterion of pre-emption would allow India to argue and justify the operation on international forums. It feasibly falls under the exception of Article 2(4) of the UN Charter through the passage of self-defence. Second, in such instances, the operational aim has never been to target the Pakistani people or even the Pakistani military. Accordingly, it is imperative for any operation to be able to claim that it is non-military in nature. Third, the operation should be of such an impact that it creates deterrence, that is, it fulfils the purpose of imposing substantial damage on the enemy, which invariably leads to deterrence.
Aimed at the establishment
The conduct of U.S. cybercommand was aimed at the Iranian establishment, specifically targeting its military installations. If India conducts a cyberstrike against Pakistan’s military command or systems, it will be termed as one against Pakistan and not the terrorists. The non-military nature and pre-emption of the operation will be viewed through the perspective of attacking Pakistani military and Pakistan in essence, rendering them as futile, for example in terms of diplomatic parleys. Further, a cyberstrike against Pakistan will call for counter-cyberstrikes. Instead of the intended deterrence, it will likely lead to an escalation. In such a situation, all or at least most of the criteria will not be met. Hence, a cyberattack is not a feasible retaliatory option for India at present.
It is, however, noteworthy that the dependency of terrorist groups on computers, networks and the Internet has increased. Various, if not all, terrorist groups use the Internet for propaganda. This can certainly be curtailed by any necessary cyberoperation. Most importantly, such an operation should not be a ‘retaliatory operation’ but a ‘regular operation’.
A cyberattack can certainly be an option when the situation changes, and India decides to act against providers of safe haven to terrorists. In such instances, the Pakistani establishment might be targeted beyond diplomatic pressures. The ability of the Indian armed forces to conduct such cyberstrikes is not completely known, and rightly so, given that disclosure of such details would take away the element of surprise.
THE INDIAN EXPRESS
- Why disability pension tax upsets veterans:
The controversy over the Finance Ministry’s decision to tax the disability pension of armed forces personnel, which had been criticised by veterans, took a surprising turn on Tuesday when Finance Minister Nirmala Sitharaman made public an unsigned note that showed it was done on the recommendation of Army Headquarters. The Army note was put out on Twitter by her office, along with a message from her calling it the “response of the Armed Forces on the issue of taxability of disability pension”.
What govt notified
In a notification dated June 24, the Central Board of Direct Taxes (CBDT) under the Finance Ministry had said that “such tax exemption will be available only to armed forces personnel who have been invalidated from service on account of bodily disability attributable to or aggravated by such service and not to personnel who have been retired on superannuation or otherwise”.
This created an uproar among veterans who called it against the interests of the armed forces personnel. The Opposition raised the matter in Lok Sabha on June 28, where Defence Minister Rajnath Singh said the government would look into these changes.
It eventually led to the posting of the Army note by Sitharaman. The note says certain “unscrupulous personnel” have found leverage in the existing system for seeking financial gains through their disabilities. The Army, it says, is concerned about personnel who are boarded out because of disability and need additional financial support. It states that the broad-banding and higher compensation awarded for disability with tax exemption has over the years led to rise in personnel seeking disability, even for lifestyle diseases.
“There should be no segregation amongst genuinely disabled personnel. At the same time, those who have found the leverages in the existing system for seeking financial gains through their disabilities, need to be scrutinised and taken to task, wherever necessitated,” the note added.
Arguing that remuneration alone cannot compensate for the disabilities of those injured in battle, the note said the service must continue to provide them necessary support during service and after superannuation. “This aspect is being exploited by unscrupulous personnel, who have gained from disability benefits provided to disabled soldiers,” the note said. The note ends stating that the trend “if not checked at this stage, is a cause for worry”, as the Army cannot have large number of personnel with “medical disabilities in the rank and file, when the security challenge to the nation are on the rise”.
The other kind of disability
Disability benefits are of two kinds, both permissible under the rules: war injury pension attributable to operational service, and normal disability pension for any disability. The latter includes the so-called ‘lifestyle diseases’ which can be attributable to or aggravated by stress and strain of service, as entitled under the rules.
His contention is based on peer-reviewed research in other democracies that have shown a direct linkage between military service and so-called lifestyle diseases. These include hypertension, cardiovascular problems and diabetes; these militaries seek to make the lives of their troops more comfortable — as seen in rising payouts for their loss of health. Research also shows a connection between military service and PTSD.
Other military veterans have a more emotional response, terming the Army note “unbelievable” and “utterly shocking”. They argue that if there is a misuse of certain provision, the Army is entitled to take suitable action to prevent that, including disciplinary action against those faking disability instead of punishing everyone.
- Spectrum of possibilities:
In the years following the liberalisation of the telecom sector in India that began gingerly in 1994, the biggest barrier to private entry was a licence or the right to operate telecom services under the Telegraph Act. Licences were scarce since the government had limited their number in the same manner that licences were controlled pre-1991. So, when India allowed private players in telecom, potential investors showed extraordinary exuberance by committing huge sums of money to obtain a licence. And for several good reasons. Competition was limited to two private operators, telecom services were constrained everywhere in the country, and therefore, there was a huge addressable market.
Unfortunately, the revenue enthusiasm of the private entrants was belied, not least because tariffs for the new services were set at impossibly high levels. The Rs 156 per month rental and Rs 16.80 per peak minute tariffs encouraged subscription but not usage. Revenues did not materialise and besides, the incumbent public sector monopoly made life hard for the private sector entrants.
In 1999, the government took a “brave” decision in favour of the sector. On a collective plea by private operators, the government agreed to reduce their licence fee burden that threatened business continuity. The sector successfully migrated to the revenue-share licence fee regime that continues today. It was a courageous call then that allowed the sector to resurrect itself from the overhang of irrational bidding. The massive growth of telecom that followed vindicated the government’s decision to migrate to a licence fee regime based on a percentage of revenue. Evidence shows that the government too has benefited. Some still take the view that private entrants should have been made to pay what they bid and that they got away.
A similar predicament confronts the sector today. It is in the grip of a severe financial crisis. The migration package has been in place for two decades. Meanwhile, spectrum or airwaves that make services possible, were unbundled from the licence in 2012. This was a significant change in the operating conditions of telecom operators and one that has gone largely unnoticed. Licences are now available on tap — anyone who wishes to offer telecom services can get one. But, there’s a catch. The binding constraint is imposed by the availability of spectrum — without it, the licence is not worth the paper on which it is printed. Thus, the effective barrier to entry is now spectrum and not the licence. How spectrum is assigned will determine the nature and extent of competition in the market, and facilitating it is one of the primary mandates of regulators.
In this backdrop, we find the rules and the reserve prices for the upcoming spectrum auction including radio waves for 5G mobile services issued by TRAI to be incompatible with the goal of facilitating competition and market growth. In brief, the reserve prices are too high, reflect an extractive mindset, ignore the prevailing circumstances within the sector and run the risk of losing money for the government, while indefinitely compromising India’s 5G adoption ability. Luckily, the Department of Telecommunication (DoT) has returned the recommendations to TRAI for reconsideration. We hope that it will. The other positive development is that the new minister has set up a committee under the telecom secretary to review levies on the sector.
This is not a brief for India’s much-vaunted and at the same time vilified telecom sector. It is a recognition that the industry’s debt levels have burgeoned, due in part to the enormous amounts paid for spectrum and other regulatory charges, and in part due to competition from technological disruptions via apps which have put pressure on traditional revenue streams. There are also the sectors’ own indiscretions somewhere along the way, but let’s keep that aside in the larger interest of what’s at stake.
Regulatory bravado would advise that it is an operator problem, and if they bid high or did not anticipate or accommodate technology, they ought to deal with it. And that’s the point of this piece. Give the sector a chance to deal with circumstances, but with a little bit of help. Just like in 1999.
The year 2010 was a watershed moment in the life of Indian telecoms. Until then, spectrum was administratively assigned, and thereafter by auctions. The pre-2010 administrative assignment of spectrum suffered from lack of transparency, favouritism and avoidable scandals. The Supreme Court thus ordered the government to auction spectrum for “all times to come”.
Telecom auctions have unquestionably had their advantages. Usage has become efficient and the government has generated substantial revenue. When combined with other fees such as for licences and spectrum usage charges, the government has collected Rs 4,84,198 crore since 2010-11. This amounts to over 28 per cent of the cumulative non-tax revenue receipts of the government during this period.
But auctions are also risky and the outcomes depend upon its design. The reliance on high reserve prices could be counterproductive and could result in unsold spectrum, delayed services and a permanent loss of revenue for the government. This has happened in the past. Bidder turnout, market conditions and the choice of auctioning agent are all important. We currently follow a simultaneous multi-round ascending auction method, which could be designed to produce high revenue for the government, and the auctioneer (if auctioneer fee is linked to the auction outcome), but at a cost to the sector. If this is done for the upcoming 5G auctions, India could well miss the 5G bus, or even come under it.
If the Supreme Court’s diktat endures for “all times to come”, we must learn to conduct spectrum auctions that balance transparency in allocation and revenue expectations for the government. The combinatorial clock auction is a popular alternative that has been tried elsewhere to reduce risks and improve efficiency. On the other hand, if we could infuse trust in administrative assignment and link spectrum allocation to market development, it can be the elixir the sector needs.
Neither is going to be easy. But when the problem is knotty, so are the solutions. We must recognise that spectrum is the new entry barrier or the manifestation of market power. No operator should be allowed to hoard or capture it. Large amounts need to be assigned on reasonable terms for 5G services to maximise the technology’s potential.
- Our electricity future:
The UNION Power minister has reasserted the government’s commitment to an electricity future with uninterrupted supply for all, increasingly from renewable energy sources. Simultaneously, institutional rearrangements are being pushed to enable a transition to this future. Will the poor be a part of this electricity future, with reliable supply and from cleaner sources? The answer depends on how they are placed — as welfare beneficiaries or change agents.
Making the poor a part of this electricity future will require a shift in India’s approach to electricity access, away from “redistributive welfarism” that prioritises subsidised costs for the poor at the cost of quality of service. In a policy note produced at the Centre for Policy Research — ‘Beyond Poles and Wires: How to Keep the Electrons Flowing?’ — we suggested an agenda going forward.
The immediate priority is to better target central aid for the poor. We identify three ideas that build and improve existing programmes, and should be prioritised by the Ministry of Finance in making budgetary allocations. All are important for ensuring the welfare of the poor.
Shifting agricultural demand to solar energy is a justifiable goal. It helps the farmers with day-time supply, reduces seasonal peak for discoms, and reduces subsidy burden on the discoms and states. Despite sustained central aid for solar pumps, only about two lakh units are deployed. Slow uptake is caused by farmers’ inability to pay their share, states’ reluctance to contribute their share and delay in subsidy payment inflating the costs.
Earlier this year, the government approved the ‘Kisan Urja Suraksha evam Utthaan Mahabhiyan’ (KUSUM) with Rs 34,422 crore central aid which seeks to harness 25.75 GW solar capacity for agricultural use. KUSUM offers 30 per cent of benchmark cost as central aid and requires the states to match with 30 per cent subsidy. The farmers can finance another 30 per cent of the cost, which will be paid through monthly instalments, and they have to make a one-time payment for the remaining 10 per cent. Given the state of agrarian distress, farmers who have already invested in pumps have neither the incentive nor the ability to pay their share. The monthly instalments are an additional burden.
The way forward must build on a partnership of the beneficiaries, including the Centre, the states, discoms and farmer communities. Maharashtra chief minister’s Solar Agriculture Feeder Programme provides a useful template. This model eliminates fiscal burden on farmers and assures reliability of supply with grid connectivity. Moreover, it retains the control on supply duration to manage groundwater withdrawal, which is lost in standalone solar pumps. The Centre must put focus on scaling this scheme, with state-specific approaches and targets. Central aid for micro-irrigation may be clubbed with solar pump schemes for better water-energy efficiency.
Phase II of the Grid-Connected Rooftop Solar Programme, approved in February 2019, with Rs11,814 crore aid, seeks to incentivise consumers and discoms to deploy 22 GW solar capacity. Enhancing central aid to 40 per cent of benchmark cost is a commendable step. But prioritising 1-3 KW systems misses out the poorest. Around half of Indian households consume below 50 kWh per month and have a load below 0.5 KW, which can be met through 1 KWsolar systems. The Centre must redesign the fiscal support, targeting this consumer group. This group has the highest subsidy demand (per kWh), which is partly borne by the states. But they have little incentive or capability to pay the capital costs.
By prioritising systems up to 1 KW the scheme can reach more beneficiaries with the allocated amount. The Centre should offer a higher aid for these systems, and require the states and discoms to share the remaining costs. The consumers’ contribution will include the space and unskilled maintenance, but no upfront costs. While both states and discoms gain from reduced recurring subsidy demand, discoms recover their investment through a regular tariff.
The evolving demand scenario will be as critical as supply sources to India’s electricity future. Electricity demand in the residential sector will be largely driven by cooling needs, especially in light of increasing temperatures. Fan as a basic cooling option has mass usage, including low-income homes. About 40 million units are sold every year in India, which will get a boost by the 26 million households electrified under Saubhagya. Total fans in use are projected to double reaching nearly one billion in the next 20 years. Fans account for about one-fifth of residential electricity consumption, second largest after lighting.
Commercially available efficient fans consume 30 per cent less electricity. Yet, this potential is overlooked. Interventions to promote energy-efficient fans have not made much progress. Only 10 per cent of ceiling fans sold are energy-efficient rated and only half of them are five-star rated.
The Centre should extend financial aid to expand and expedite the National Energy Efficient Fan Programme, with some cost-sharing for low-income households. It will reduce highly subsidised consumption and thus help the discoms reduce their subsidy burden, while helping the poor to access basic cooling facilities. With the rising incidence of heatwaves, making efficient fans affordable for the poor has welfare benefits and contributes to the sustainability agenda.
India’s electrification programmes have always targeted the poor, but as welfare beneficiaries. These suggestions are a step towards empowering them to be change agents in shaping the electricity future.